A-AS Level (CIE) Accounting Paper-1: Specimen Questions with Answers 18 - 19 of 93

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Question 18

Question

MCQ▾

Bonus shares can be issued by a company

Choices

Choice (4)

a.

Without any provision for it in the articles of Association of the company

b.

Out of share premium not collected in cash

c.

Out of free reserves built out of genuine profit

d.

Out of the Reserves created by revaluation of fixed assets

Answer

c.

Explanation

Bonus share are issued by the companies in lieu of paying a cash dividend. It can be issued for two reasons:

  • Investing for long terms
  • Generating an annual income

Bonus share is important for long term it does not carry tax on dividend income. Investor receives more money in case company starts paying cash dividend in future. It increases the participation of the small investors and increases the perception of a company՚s size.

Question 19

Question

MCQ▾

The quick ratio of a company is 1.5: 1. State what will be the effect on the ratio if ‘Cash is received from debtors’

Choices

Choice (4)

a.

improves

b.

Not change

c.

Reduce

d.

All of the above

Answer

b.

Explanation

An ideal quick ratio is said to be 1: If it is more, it is better. The concept is that for every dollar of current liabilities, there should at least be one dollar of liquid assets. Quick ratio is a better way of testing short-term financial position of the company as compared to the current ratio, as quick ratio only considers those assets which can be easily and readily converted into cash. Stock is not included in liquid assets as it may take lot of time before it is converted into cash.

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